Home Sales Slip

Mortgage markets remained sensitive to fluctuations in energy prices this week, with headlines surrounding the conflict in the Middle East contributing to periods of volatility. The major economic data revealed no significant surprises, and mortgage rates ended the week slightly higher.

Two significant economic reports from the Institute of Supply Management were in line with expectations for slight declines from last month's strong results. The ISM national services sector index fell to 54.0, while the ISM national manufacturing sector index dropped to 53.3. Readings above 50 indicate an expansion in the sectors. While tariff policies have been uncertain since the Supreme Court decision in February, higher tariffs implemented last year may be helping domestic manufacturers narrow the performance gap with service firms over the last few years.

The first Fed meeting led by new Chair Warsh took place on June 17, and as usual the detailed minutes were released three weeks later. The minutes highlighted a broad range of opinions among policymakers regarding the inflation outlook. Ongoing uncertainty surrounding oil prices and tariff policy continues to make forecasting more challenging, leaving Fed officials nearly evenly split on whether the next move in the federal funds rate is more likely to be a cut or a hike. As a result, future Fed monetary policy decisions will remain highly dependent on incoming economic data, providing investors with limited forward guidance.

Looking ahead, attention will remain fixed on the conflict in the Middle East and the proposed deal to ease tensions. Investors also will monitor comments from Fed officials about future monetary policy. For economic reports, the Consumer Price Index (CPI), a widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services, will be released on Tuesday. The Producer Price Index (PPI), another monthly inflation indicator, will come out on Wednesday. Retail Sales will be released on Thursday. Since consumer spending accounts for over two-thirds of U.S. economic activity, the retail sales data is a key measure of the health of the economy. Housing Starts and Import Prices will come out on Friday.